The High Court has dismissed PwC International’s application to strike out China Evergrande Group’s claim against it in proceedings arising out of the audit of Evergrande’s consolidated financial statements. The claim, valued at around US$5.6bn, is one of the most substantial professional negligence claims to come before the courts. The judgment is not a determination of liability, and decides only that Evergrande’s pleaded case is sufficiently arguable to proceed.

Evergrande, now in liquidation, alleges that PwC Hong Kong and PwC Zhong Tian negligently audited its accounts. Evergrande alleges that PwC International, as the coordinating entity at the apex of the PwC global network, owed it a tortious duty of care regarding the monitoring and review of the relevant audits and the audit functions of PwC Hong Kong and PwC Zhong Tian.

PwC International applied to strike out the claim on the basis that it owed no duty of care to Evergrande. It contended that it was not Evergrande’s auditor, was not a party to the audit engagement letters, and did not itself conduct the audits or issue the audit opinions. It also argued that Evergrande had pleaded no facts capable of establishing an assumption of responsibility, proximity, reliance, or degree of control sufficient to found a duty of care for pure economic loss.

The Court rejected the application. It held that the pleaded case contained the necessary elements of an arguable duty of care, and that the claim was sufficiently fact-sensitive that it should not be struck out at this stage.

In reaching that conclusion, the Court reviewed the modern English authorities on duties of care for pure economic loss, audit negligence, and group or network liability, including 

Robinson v West Yorkshire Chief Constable

JP SPC 4 v Royal Bank of Scotland International Ltd

. It also recognised that this is a developing area of law, making it inappropriate to determine the point summarily.

The decision is significant for professional negligence claims involving global networks and affiliated entities. It shows that an entity outside the immediate audit engagement may, on an arguable pleaded case, owe a tortious duty where its alleged role involves oversight, monitoring, or control of the relevant professional work.

, instructed by Gibson Dunn, acted for PwC International.

 and Cherry Xu, instructed by Karas So LLP, acted for Evergrande.

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Evergrande v PwC: High Court refuses strike out of US$5.6bn claim

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